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Guide · S corporations
The S corporation's main benefit is that profits paid as distributions avoid Social Security and Medicare tax. Here is how the math works, what it costs and when it is not worth it.
Serving United States, Virginia, Washington, DC, Maryland.
What we handle
As a sole proprietor or single-member LLC, all net profit is subject to self-employment tax of 15.3% up to the Social Security wage base and 2.9% above it. As an S corporation, only the owner's wages bear payroll tax; the remaining profit flows through as distributions without it.
Example: a consultant earns $150,000 of profit. As a sole proprietor, nearly all of it bears self-employment tax. As an S corporation paying a documented reasonable salary of $80,000, the other $70,000 avoids payroll tax, saving roughly $9,000 to $10,000 a year before costs. Payroll processing, an extra tax return, state fees and unemployment taxes can reduce that by a few thousand dollars, and a higher salary or the QBI deduction changes the result, so we model it for your facts.
Speak with an advisorWhere we help
The IRS reclassifies distributions as wages when salary is unreasonable.
Unequal distributions can threaten the S election.
Extra compliance costs reduce the net savings.
Losses and tax-free distributions depend on shareholder basis.
Our approach
A senior advisor reviews your facts and documents.
Scope, fees and timeline in an engagement letter.
Returns, elections and forms prepared and reviewed.
IRS contact and planning all year.
Questions
If your question isn't here, call (703) 880-8412 and you'll reach a person.
It shows the mechanics. Your savings depend on profit, the salary your work supports, state taxes and costs.
No. Salary must be reasonable for the services you perform, and courts have reclassified distributions as wages.
Not directly; the main saving is payroll tax. The QBI deduction and retirement plans can add income tax savings.
See our S corporation tax planning and reasonable compensation pages.
Latest updates
Authorized representatives can now make balance-due, amended return, extension, proposed assessment and federal tax deposit payments for business clients online. Appropriate authorization for the client and tax matter is required.
Source: IRS (IR-2026-134)
For 2027 the joint-return standard deduction rises to $33,200, the estate tax basic exclusion to $15,480,000, the annual gift exclusion to $20,000 and the Section 179 expensing limit to $2,640,000. Our advisors recommend revisiting year-end gifting and equipment purchase plans with these figures in mind.
Source: IRS (IR-2026-133)
All 6,576 nominated census tracts, including 2,594 rural tracts eligible for enhanced benefits, become Opportunity Zones on January 1, 2027 for ten years. Investors with capital gains should review the new map before committing funds.
Source: IRS (IR-2026-132)
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